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Failing Grade For FCC's E-Rate Program

A new congressional report determined that the E-rate program, though having good intentions, is poorly managed by the Federal Communications Commission (FCC).

The House Oversight and Investigations Subcommittee said that the mismanagement of the program that funds Internet connections in schools and libraries has led to waste, fraud and abuse.

"The government mismanagement of the E-rate program seems to know few bounds," said Rep. Joe Barton (R-Texas), chairman of the Energy and Commerce Committee, in a statement issued with the report. "Unscrupulous vendors . . . fleeced the program while underserved communities and telephone customers pay the price."

The "education rate," or E-rate as it became known, was capped at $2.25 billion a year and is funded through fees on telephone customers. Republicans fought the program and mockingly call it the "Gore tax" in reference to then Vice President Al Gore's unflagging support for the program.

Since last year, the House has held five hearings examining E-rate waste, fraud and abuse. In one of the most infamous cases, the government disbursed $101.2 million from 1998 to 2001 to equip Puerto Rico's 1,540 schools with high-speed Internet access.

A later review found very few computers actually connected to the Internet and $23 million in equipment sitting in unopened boxes in a warehouse.

"The Federal Communications Commission, these merchants and certain schools all must share in the blame for this disgrace," said Barton who promised reform legislation.

The report comes after a nearly two-year investigation of the E-rate program, which began under former Chairman Billy Tauzin and continued under Barton's leadership.

The report concludes that weak competition requirements and poor oversight by the FCC opened the door for unscrupulous vendors to "completely manipulate" the competitive process for the E-rate program and goods.

Vendors, however, weren't the only ones manipulating the program, according to the report. Some school districts acquired goods and services without using a formal bidding process, contrary to both the program's rules and local regulations.

In addition, the report said school districts engaged in "gold-plating," where schools acquire goods and services far beyond reasonable school district needs and resources.

In the Telecommunications Act of 1996, Congress expanded the Universal Service Fund (USF) to assist schools and libraries in acquiring telecommunications and Internet services. The fund was originally designed to help low-income and rural areas acquire telephone service.

"It is clear to me, as I consider the work laid out in this staff report, that many E-rate program weaknesses must be addressed legislatively to avoid waste and misuse," said U.S. Rep. Ed Whitfield (R-Ky.), the chairman of the Oversight and Investigations Subcommittee.

Barton and Internet Subcommittee Chairman Fred Upton (R-Mich.) said they plan to craft legislation "fundamentally reforming the E-rate program."

The lawmakers said the legislation would begin with more vigorous oversight by the FCC, which may require additional personnel. They also promised a full audit of the program.